Monday, March 29, 2010

Asset Rich, Cash Poor

At a forum organized by the Singapore government’s feedback unit, REACH, Singapore Prime Minister Lee Hsien Loong said that there is a growing trend of elderly home-owners who sold their flats to pay off debts and then asked the government for a rental unit. The PM said that the government is concerned and keeping a close eye on the matter.

Now the Singapore assumption is that your property is an asset for one’s old age and to most Singaporeans, a property is a must. However in this case, I disagree with the PM’s suggestion that elderly home-owners should not sell their flats.

One of the biggest problems of Singaporeans is that they are asset rich but cash poor, and I think most Singaporeans will agree that their wealth is tied up in their property. Now at the risk of being dry, I will get into some numbers. Take for example an elderly person who sells his flat and bought a new flat like the PM want and make $40,000 in profit (a solid number I think). What happen then?

Assuming his daily expenses is on the low side of about $10 (breakfast, lunch, dinner, etc), he would have spent $3,650 per year. In 10 years time, the money would be gone! Would he not still be in the same position he is now about having to sell his flat again?

Yes, because getting a job is not an option as the PM himself said, the person is elderly. How would a 60+, 70+ person find a job in Singapore? If you are an employer, would you pick a 70+ Singaporean or a 20+ foreign worker?

And that’s for an elderly person; if it is an “elderly couple”, the money would be gone twice as fast and they would be in the same position in just 5 years time!

However that is not what I am really disagreeing about. What I truly disagree is this thinking that elderly Singaporeans should not sell their flats. Why?

We have foreigners coming in to Singapore to speculate on the property markets, but elderly Singaporeans (who made Singapore what it is now) should NOT sell their flats?

What kind of sense is that? PM Lee said this goes against the aim of these homes as assets for life, but the thing is; if you are 70+, how many more years do you have? If these elderly people can’t sell their flats at this age, then when can they sell the flats? If you are 70+, you will be less worried about the asset that is the flat and more worried about if you have the money to eat.

Sell the flat, get a rental unit for $50-$100 per month so that daily expenses would not be a problem. That makes perfect sense to me. In contrast, the PM’s floated idea of keeping the flat makes no sense to me. What’s the use of keeping the flat when you have debts and even have problems finding the money to eat? It’s not like Singapore has any welfare programs for the elderly.

Now I understand the PM’s idea of the flat being an asset for life. However at 60-70 years of age, being asset rich is less important than being cash rich and I truly feel giving these rental flats to these elderly is the right thing to do.

After all, what choice do they have? If they keep the flat, they would be chased by the debt-collectors and might have problem to put food on the table. Compare that to the solution of selling and getting a rental flat, it’s hardly even a choice.


sgcynic said...

Mah Bow Tan say we can montetize our flats; Lee Hsien Loong says we should not sell. How?

Anonymous said...

We have a bunch of clowns - a bunch of heartless, brainless clods up there 'looking out' for our 'best' interest.

But one thing is too obvious from the many many contradictory remarks they have made - they don't think for to micro-seconds what they say to you. That, in my books shows only arrogance and a lack of conscientiousness.

These people have well fed bellies and swollen egos who care nothing for what they do to others.

skeptic said...

Counting one's HDB flat as an appreciating asset is really misleading. Unless you intend to emigrate, can you really benefit from the price appreciation?

After you sell your house, where would you go? Into another equally pricey apartment.

Even the concept of doing a reverse mortgage for senior citizens is tricky as it is a 99 year leas-hold and not a free hold.

Strictly speaking, if you think about the HDB flat's worth in terms of its utility instead of the speculation induced price, it is actually depreciating since the amount of time you can live inside is being reduced.

Ghost said...

Frankly I disagree with doing a reverse mortgage on a HDB flat. Calling it tricky is an understatement in my view but if the flat is an asset, then the elderly should be allowed to sell. I mean what’s the use of an asset if you can’t get rid of it for cash when you need the money?

Anonymous said...

pap is just wanting to cover all backsides.

for those who can afford, pap wants to trick them into thinking rising property prices are good because their assets go up.

for those who are poor, pap wants them to know that they cannot rely on pap for assistance after they sell off their flats to pay debts.

there you have, pap ministerial all-purpose double-speak